EMCC European Monitoring Centre on Change

Tackling the recession: Romania

  • Observatory: EMCC
  • Topic:
  • Published on: 12 July 2009



About
Country:
Romania
Author:
Constatin Ciutacu
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited or approved by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

The anti-crisis programme devised by the Romanian Government includes general measures providing support for employees and employers in all companies that have to suspend their business temporarily and for persons who already lost their workplaces. In addition, small and medium size enterprises have particularly support measures.

As regarding action taken by companies to maintain workers in employment, the technical unemployment or compulsory annual leave schemes have been somewhat more frequent in metallurgy, car building, manufacture of automotive component parts, chemistry and petrochemistry, construction, etc. They may be associated with the strategies of privately owned companies and, mainly, with the strategies of multinational companies. Studies undertaken in the past on the effectiveness of attempts made in previous periods of recession to maintain employment levels could not be identified.

1. Measures taken by government to assist businesses and protect jobs

Support to businesses

What formal or legal arrangements (such as job subsidies, bank guarantees, loans or special credit facilities) are in place in your country for supporting firms which are at risk of having to reduce employment? (Please include only measures which are aimed principally at maintaining employment as opposed to those which are aimed, for example, at increasing competitiveness or supporting investment.)

The general legal framework for the actions to counter unemployment is Law no. 76/2002, regarding unemployment benefits and stimulation of employment, as subsequently amended and supplemented.

Under the law, the purpose of which is to prevent unemployment and maintain the current jobs through enhancement of the employees’ professional skills, employers who develop annual professional training programmes for their own workers (with the assistance of professional providers of training programmes) may receive financial aid equal to 50% of the professional training expenditures, for a number of employees that may not be in excess of 20% of such employer’s total workforce. The funding was earmarked from the unemployment benefit budget.

There is also additional legislation. Government Emergency Ordinance no. 28/18 March 2009 (GEO no. 28/2009), which regulates a number of welfare measures, provides that for employees of companies that have to suspend their business temporarily which are indemnified with minimum 75% of the nominal salary for each position, both employer and employees shall be exempted from the payment of the social security contributions for a maximum period of three months.

For the purposes of GEO no. 28/2009, the phrase 'social security contributions' means: social security contributions, plus unemployment security contributions, plus professional hazard and accident security contributions, plus the contributions to the salary claims guarantee fund, plus health insurance contributions.

It also provides that the indemnity paid to workers during a temporary suspension of business shall not be treated as salary income, and therefore it shall be income tax free.

Also, during the month of May, the Government elaborated a state aid scheme for small and medium enterprises. The aid is non-refundable, and the ceiling has been set at EUR 200,000. To quote the Prime Minister, 'It is an aid that the government extends to SMEs for them to be able to maintain their workers on the job, and engage in productive operations generating chain business.'

Are the arrangements or measures concerned permanent features of the system in your country or have they been introduced in the recent past specifically to combat the effects of the present recession? Please give an indication of the number of firms receiving support of this kind and the number of jobs protected as well as the source of funding.

In Romania, each piece of enacted legislation comes into effect after the specific administrative rules of application are published. The labour minister’s order approving the rules for the acts referred to above became effective on 12 May 2009; therefore there is no information on their practical effect.

With each ordinance, the government releases a covering memo containing the rationale of the decisions therein. The memo for GEO no. 28/2009 explains that, according to estimations, the total financial effort to implement its provisions in 2009 will be RON 381 million (some EUR 90-95 million), and it will translate into reducing budget revenues by RON 204.1 million and increasing budget expenditure by RON 176.9 million.

The funds to be allocated to SMEs as state aid will be, for the time being, EUR 100 million for the period 2009-2011, of which EUR 20 million to be allocated this year (maximum EUR 200,000 per SME).

Do the measures apply generally across the economy or are they specific to particular sectors or regions? Please indicate the sectors and/or regions concerned.

GEO no. 28/2009 applies to all businesses across the national economy, irrespective of the sector in which they operate.

The measures approved under the state aid scheme have been taken to support the SMEs (up to 250 employees).

Is there government support available for companies which introduce short-time working arrangements, give a temporary period of leave to workers or implement similar measures to enable workers to retain their jobs where there is insufficient work for them to do? If so, please give an indication of the extent of the support concerned and the number of companies, and the workers they employ, receiving support.

GEO no. 28/2009 covers companies that have to suspend operations temporarily and keep their workers in a 'technical unemployment' status, against payment of an indemnity of minimum 75% of the nominal salary of each position.

Are there are plans or proposals to introduce measures of the various kinds indicated above in order to assist businesses and protect jobs? If so, please describe them briefly.

The anti-crisis plan devised by the Romanian Government (Guvernul României) includes a number of other measures that may have at least status quo effects on the current level of employment. For example: 20% of the budget expenditure (some EUR 10 billion) will be apportioned to investment in transport infrastructure, environment, thermal insulation of apartment buildings, etc.; reinvested profit will be tax-exempt; the Romanian Counter-security Fund will be created as a non-banking financial institution designed to cover up to 80% of the security risks for loans and other financial instruments engaged by Romanian corporate entities; the above loan security arrangements will benefit, according to the SMEs ministry’s estimations, some 8,000 Romanian companies); a.s.o.

These measures are supplemented by those regarding the financing of professional training programmes with financial support from the European Social Fund.

For example, in the framework of the 'Sectoral Operational Programme for Human Resources Development 2007-2013' (one of the programmes financed from the European Social Fund in Romania, under the responsibility of the Managing Authority for the Sectoral Operational Programme for Human Resources Development), in 2009, was launched a new call for tenders for Priority Axis 3 'Increasing adaptability of workers and enterprises', for Major field of intervention 3.1 'Promoting entrepreneurship culture'. This aims at promoting entrepreneurial culture as an important factor for increasing economic competitiveness through training actions in order to provide the basic management knowledge for the people willing to start a business, improving managerial skills for small and medium enterprises, qualification and assistance for the employers working in sectors affected by economic restructurings. The value of the projects must be between EUR 500,000 – EUR 5 million. The deadline to submit proposals is middle July 2009.

Support to workers

What formal or legal measures (such as partial unemployment benefit or similar kinds of social transfer) are in place in your country to support workers who have been put on to short-time working by employers or who have been given temporary leave with reduced rates of pay (i.e. who still formally have jobs but who are either not working or working reduced hours)? Please describe the measures concerned and indicate the scale of support provided. Please also give any figures available for the number of workers receiving payments of this kind as well as the source of funding.

According to Government Emergency Ordinance no. 28, in 2009, a company temporarily suspending operations if pay its workers an indemnity of minimum 75% of the nominal salary due for each job, both employer and employees are exempted from payment of social security contributions, for a maximum period of three months.

For the purposes of GEO no. 28/2009, the phrase 'social security contributions' means: social security contributions, plus unemployment security contributions, plus professional hazard and accident security contributions, plus the contributions to the salary claims guarantee fund, plus health insurance contributions.

Similarly, the indemnity so paid will be treated as a non-salary income, and therefore it will be income-tax free.

The labour minister’s order approving the rules of application of GEO no. 28/2009 being of a recent date (12 May), there has been practically too little time to assess the effects.

The government’s cover memo for GEO no. 28/2009 explains that, according to estimations, the total financial effort to implement its provisions in 2009 will be RON 381 million (some EUR 90-95 million), and it will translate into reducing budget revenues by RON 204.1 million, and increasing budget expenditure by RON 176.9 million.

Are the measures concerned permanent features of the system in your country or have they been introduced in the recent past specifically to combat the effects of the present recession?

All of the measures above have been taken for the specific purpose of countering the effects of recession.

Has the coverage of the social benefit system which provides income support to workers who lose their jobs been widened in the present recession in order to ensure that those concerned are protected (such as, for example, through a relaxation of the rules and regulations governing the payment of unemployment benefits or other forms of social transfer or through an extension to workers not previously entitled to support)?

The unemployment benefit period which, prior to GEO no. 28/2009, had been 6 months for workers with a contribution record of 1 – 5 years, 9 months for contributions of 5 – 10 years, and 12 months for contributions of more than 10 years, has now been extended by three months for all contribution brackets.

Are there any plans or proposals to provide income support for those working short-time or on temporary leave? If so, please describe them briefly.

No data available.

2. Action taken by companies to maintain workers in employment

What action, if any, has been taken by companies during the present downturn to keep workers in jobs in situations where the work for them has declined? Please describe briefly cases where companies have introduced short-time working (such as fewer hours per days or fewer days per week), temporary periods of leave or other means of maintaining people in jobs.

As a concrete example, the management of the multinational company Arcelor Mittal Steel first gave each employee 10 days of the annual leave, by rotation, during the first quarter 2009 (RO0904019I).

Then the company planned, for the second quarter, a 10-day technical unemployment scheme for all employees, by rotation, against payment of 75% of the aggregate amount of base salary plus length-of-service bonus.

After many rounds of talks with government representatives, who had promised support for the steel industry, the company’s management decided to postpone the technical unemployment scheme and that the employees already on such scheme should receive 85% of the aggregate amount of base salary plus length-of-service bonus, and that compulsory annual leave should be only five days for each employee.

The same measures were announced for Siderugica Hunedoara, also a member of the Arcelor Mittal Steel Group, beginning from the end of May.

At Silcotub Zalău, of a total of 1,030 workers, those of them who still had uncompleted annual leave rights were obliged to consummate them during the period 19 December 2008 – 5 January 2009, while the rest of them were placed under a technical unemployment scheme, for 75 % of salary.

During the latter half of May, some 800 of the 3,700 employees of the Mechel Steel Targoviste (a manufacturer of chisel steel, rapid steel, and electric steel) went on technical unemployment, due to a shortage of demand. According to the union leader, the steel workers are to receive 75% of the base salary. Mechel has some 3,700 employees on record.

The chemical and petrochemical plants applied the same technical unemployment formula during the first quarter 2009. For example, the Azomureş Plant preferred to place all of its 2,000 employees on technical unemployment during the period 1 December 2008 – 1 February 2009; at the beginning of May, the management of Nitroporos declared a three-month technical unemployment for its 500 employees.

Automobile Dacia Piteşti stopped production several time between October – January, putting its employees on technical unemployment, with a pay of 85% of each total gross salary, with all of them continuing to receive the meal tickets and the Christmas bonus. Of the 14,000 workers, there were periods of time when only 100 people were still active.

The decision of Automobile Dacia Piteşti to suspend operations had negative effects on upstream companies which, as manufacturers of component parts to Dacia, had to put their employees on technical unemployment.

See the data under the immediately previous section.

Have particular types of company (e.g. multinationals or domestically-owned firms) or firms in particular sectors been more prepared to take this kind of action than others?

The technical unemployment or compulsory annual leave schemes have been somewhat more frequent in metallurgy, car building, manufacture of automotive component parts, chemistry and petrochemistry, constructions, etc. And they may be associated with the strategies of privately owned companies and, mainly, with the strategies of multinational companies.

Has the action in question typically entailed a reduction in pay? If so, please give an indication of the typical extent of this.

During the technical unemployment periods, workers receive a share of 75-85% of their base salaries. For details, please see section 1 above.

To what extent has this kind of action been accompanied by the provision of training or education to the workers concerned – i.e. how far have companies taken advantage of the lack of work to improve the skills of their work force?

No information is available to indicate that companies might have capitalised on the free time gained by slack business to improve their workers’ skills through vocational training initiatives.

However, as soon as the 'Money for vocational training' scheme recently planned (May) by government takes effect, the companies may become interested in such actions. The scheme is only for corporate entities, and applies to the following areas of intervention of the Sectoral Operational Programme for the Development of Human resources (POSDRU): 2.1 'Switching from School to Active Life'; 2.3 'Access to and Participation in Continuous Vocational Training'; 3.2 'Training Employers and Employees to Improve/Develop Adaptability Skills'.

3. Joint action taken by companies and trade unions to maintain jobs

How far has the kind of action described in Section 2 above been the subject of collective agreements between companies and trade unions? Please give summary details of the content of some of the most important collective agreements.

According to Art. 43 of the 'Unique National Collective Agreement for the years 2007 – 2010', employers must put in place the appropriate conditions enabling each employee to fulfil the professional tasks specific for his job within the daily working hours jointly agreed upon; otherwise, an employer has the obligation to pay the base salary during interruption of business. In exceptional cases, when operations halt due to technical or other reasons, the workers must be paid 75% of each individual’s base salary at the time of interruption, provided that they remain available to the company, while continuing to enjoy the other entitlements afforded to them by law; when, for objective reasons, operations must be slowed down or discontinued temporarily (but for no more than 15 days a year in the aggregate), the employer may put the workers on a non-paid leave of absence, provided that the unions approve and that business is resumed.

The provisions of the national collective agreement are minimal with regard to employees’ rights, and count as a starting point for all the other negotiations down the scale (sectors, groups of companies, and companies), where, as a rule, workers obtain better terms for themselves.

To what extent has other action been taken under collective agreements to reduce business operating costs so as to avoid job losses? Has there been an increase in instances of trade unions, or worker representatives, agreeing to accept cuts in pay, or to work longer hours without additional pay, in order to maintain employment levels? If so, please give an indication of the extent of such agreements and describe briefly typical cases.

In many cases, when negotiating the collective agreements for the year 2009, the unions agreed to the extension of the previous agreements for another year, waiving their initial claims to wage raises in the attempt to save job cuts.

Are such agreements more prevalent in some sectors than others?

Generally speaking, such compromise solutions between the social partners were accepted in sectors where the effects of the economic crisis have been stronger.

What other forms of action have trade unions taken, apart from strikes and other action designed to put pressure on employers, in order to try to prevent job losses and maintain employment levels? How effective has such action been?

In the metallurgical industry, on 24 March, the Solidaritatea Trade Union (Sindicatul Solidaritatea) staged a protest meeting in Galaţi, to express disagreement to the technical unemployment measure. The union members demanded the declassification of the company’s privatisation agreement, and the appointment of a competent management team capable to compel the new owners to fulfil their technological, environmental, and social investment commitments agreed upon under the restructuring and upgrading schedule attached to and forming a component part of the privatisation agreement (RO0904019I).

After several rounds of talks with Cabinet members, who had promised support for the steel sector, the company’s management decided to desist the technical unemployment scheme, to pay 85% of the base salary and the length-of-service bonus to those already on the scheme, and to reduce the compulsory annual leave fragment from the initial 10 to 5 days for each employee.

In view of the contemplated redundancies in chemical fertilisers industry, which, in the first phase would have affected, according to unions’ estimations, over 10 companies and some 6,600 employees, the Federation of Free Unions in the Chemical and Petrochemical Industries (Federaţia Sindicatelor Libere din Chimie şi Petrochimie, FSLCP) persuaded the employers counterpart organisation, the Federation of Employers in the Chemical and Petrochemical Industries (Federaţia Patronatelor din Chimie şi Petrochimie, FEPACHIM) to sign, on 3 December 2008, a joint statement requesting the government to ‘urgently’ initiate consultations and negotiations with the social partners in order to identify solutions to save these industries from such a setback. In sign of protest, the unions also picketed the prefectures of the counties where these industries are located.

On 10 January 2009, the minister of economy met with the representatives of the employers’ and employees’ organisations in the chemical and petrochemical sectors and, among other ideas, the proposal was discussed of subsidising the industry through emergency aid to farmers (RO0901039I).

4. Measures to provide income support

To what extent do collective agreements include provision for higher rates of compensation in the event of workers being made redundant than they are entitled to under national legislation? How far do collective agreements providing more generous compensation than the statutory amount vary between sectors?

The 'Labour Code' stipulates that workers affected by collective redundancies must be paid severance according to the terms of the collective agreements governing the sector, group of companies or company, or according to any special legislation, as the case may be.

Sectoral collective agreement specifies, as a rule, the amount of severance pay in the event of collective dismissals.

For example, the 2007 – 2010 collective agreement for the chemical and petrochemical sector prescribes that, on redundancy date, the workers affected thereby should receive a severance pay equal to at least three average gross salaries at company level. The 2008 Addendum to this agreement provides no changes of this amount; in the machine-building sector, the collective agreement for the years 2008 – 2010 provides that, upon dismissal, the severance pay must be equal to at least one average salary at company level. In this case, too, the addendum signed in January 2009 brings no changes in this respect. Similar provisions are contained in the collective agreement for the textiles and garment industries for the years 2007 – 2010.

The collective agreement for building material industry for the period 2008 – 2010 sets forth severance pay in case of collective redundancies equal to six average gross salaries; for the sector of mining and geology, the collective agreement for the period 2008 – 2010 provides money compensations proportional to the length of service, and ranging from 3 to 12 gross average salaries at company level; workers affected by collective redundancies in the wood industry must receive, according to the 2008 – 2012 collective agreement for this sector, a severance pay equivalent to at least one base salary, if under 10 years length of service, and at least 2 salaries if over 10 years length of service; similar provisions are in the collective agreements covering the period 2007 – 2010 for the electrotechnical, electronics, fine mechanics, heavy machinery and defence industries; in the construction sector, the collective agreement for 2008 – 2009 provides the employers’ obligation to pay at least 50% of the monthly gross salary for workers with a work record of less then 10 years, and one salary for over 10 years length of service; in agriculture, fish breeding and fishing, the collective agreement for the period 2008 – 2009 provides a severance pay equal to 5 average salaries at company level, in case of redundancy.

Collective agreements at company level are sometimes more generous than sectoral agreements, in terms of severance pay.

Has there been an increase in the number of collective agreements which include such provision during the present downturn?

For 2009, of all sectoral collective agreements, only one has been amended with regard to severance pay in the event of collective dismissals.

In March 2009, the social partners signed an addendum to the sectoral collective agreement for the media industry, stipulating that, when an employer gives termination notice for reasons that cannot be held against the employee, such employee shall be entitled to a severance pay equal to at least twice the base salary of the last month. And, when redundancies affect over 10% of all workforce of an employer, the severance pay shall be equal to three such salaries. This was a stipulation added precisely for the purpose of alleviating the effects of the crisis on the employees in the mass-media sector.

To what extent are redundancies being concentrated on older workers, i.e. taking the form of early retirement, in the present downturn? Is there any evidence that the use of early retirement as a means of effecting reductions in employment has increased in importance during the present downturn

Indeed, anticipated retirement was resorted to quite often. As a corporate strategy, collective redundancies have targeted especially employees hired under temporary employment contracts, and workers close to retirement age and therefore eligible for early retirement, in this order of preference.

5. Lessons from research studies

Have any studies been undertaken in the past in your country on the effectiveness of attempts made in previous periods of recession to maintain employment levels similar to those covered here? If so, please outline the studies concerned and their main findings.

No.

If partial unemployment benefit, short-time working or similar schemes which provide income support to those working short hours are a permanent part of the social security system in your country, please briefly describe any studies which been undertaken on their effects and the main conclusions to emerge from them.

The existence of such studies could not be identified.

Constatin Ciutacu, Institute of National Economy, Romanian Academy

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